Silver options let a buyer take a view on price changes while paying a premium for a limited period. A call offers exposure to a rise; a put offers exposure to a fall. The size of the move and the premium determine whether the buyer makes money.
How silver options work
The examples use options on silver futures. A call gives the right to enter a long futures position at the strike price. A put gives the right to enter a short futures position at that price.
An electronics manufacturer may use silver calls to manage input costs. An investor can use puts against a price decline, but an option is not ownership of physical silver.
The cost of one option
One COMEX contract represents 5,000 troy ounces. At a premium of $1 per troy ounce, one option costs $5,000 ($1 × 5,000).
Assume the futures price and strike are both $25 per troy ounce. The call and put premiums are each $1 for comparison, not current quotes. Results below are at expiration, before fees, with any futures position from exercise immediately closed at the stated price.
Buying silver calls
Suppose you expect silver prices to rise and buy one $25 call for $5,000.
If the underlying future reaches $28 per troy ounce at expiration, buying at $25 gives an advantage of $3 per troy ounce. Across 5,000 units, that is $15,000. After the premium, your net profit is $10,000.
At $25 or below, the call expires worthless and the loss is $5,000. Breakeven is $26 per troy ounce: strike plus premium. At $25.5, the call has value but still loses $2,500 after its cost.
Buying silver puts
If you expect prices to fall instead, buying one $25 put costs $5,000 in this example.
At a futures price of $22 per troy ounce, selling at the strike gives an advantage of $3 per troy ounce. The option is worth $15,000 at expiration, leaving a $10,000 net profit after the premium.
At $25 or above, the put expires worthless. Breakeven is $24 per troy ounce. At $24.5, the price has fallen, but the put still loses $2,500: the move has not covered its premium.
Before expiration
An option can be sold to close before expiration when a market is available. Its price then includes the effect of remaining time and implied volatility, so an earlier trade need not break even at the expiration price calculated above.
The purchased option can lose its whole premium. Exercise can create a futures position requiring margin and exposing you to further gains or losses. An uncovered seller can lose more than the premium received.
Silver price chart
OANDA Silver spot reference price. Spot prices differ from futures contract prices. Check the widget timestamp and market status; prices may be delayed.
